Cheap Gas Has Big Cars Back On Track

A recent Vox.com article suggested that the slide in oil prices that has taken gasoline down to multi-year lows has taken with it the American interest in smaller cars.1

US sales of new SUVs and pick-up trucks rose 9.6% in November, hugely outpacing the 1.3% rise in overall vehicle sales). At the same time, fewer Americans are buying small cars, Vox said. Sales of Ford’s Navigator SUV were up 91.5% over this time last year, for example. By contrast, sales of Ford’s smaller and popular Fusion were down 11.3%.

It’s not just new cars — the same thing is happening in the much larger used-car market, where prices for mid-sized SUVs, large SUVs, and large trucks have all risen 10% or more over the last year. “Low gas prices have increased consumer demand for these utilitarian vehicles,” according to car analysts at Edmunds.com cited by Vox.

While even larger cars and trucks are more fuel-efficient than the models of just a few years ago, the move away from smaller cars has already made an impact. Fuel economy in the US is now starting to stagnate after improving during the years when gasoline was expensive.

In addition to low gas prices motivating us to step up in size, we’re also simply driving more in light of the lower cost of filling up.

That will mean more wear and tear on automobiles. When that happens, it follows that you’ll see a rise in demand for replacement parts, maintenance and vehicle services.2

“With gas prices at multiyear lows, we expect vehicle miles traveled to continue to grow, increasing demand for auto parts while providing relief to the low-income consumer,” Sterne Agee analysts Ali Faghri and Michael Ward noted in a recent report cited by Investor’s Business Daily.

Case in point: car parts retailer AutoZone, which saw its stock rise last week after the company posted double-digit earnings growth in its latest quarter, topping analyst estimates. The company cited better inventory availability, as well as low gas prices and better weather, for the results.3

But AutoZone isn’t alone in experiencing investors’ good cheer. Over the past six months, as the cost of gas has fallen, the stocks of many stocks associated with the used-car market have risen.

The Used Car Tune-Up motif, for example, has risen 17.2% since mid-June. During that same period, the S&P 500 has gained 3.7%.

Over the past month, the motif has increased 5.4%; the S&P 500 is down 1.6%.

As US vehicle sales have steadily risen each year following the last recession, the automotive aftermarket parts industry has continued to rebound.

This upward trend has also been lifted by the rising number of car owners holding onto their automobiles for longer periods: The average age of a passenger car in the US has stood at around 11.4 years for the past few years. In 1995, the average age was 8.4 years.4 In light of an aging vehicle fleet, including more cars needing servicing, the growth in demand is projected to push the automotive aftermarket parts industry’s revenue up to roughly $140 billion in 2014, a point that investors may already be embracing.

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